Introducing margin finance to take a bit longer
KATHMANDU,JUNE 9:
Looking at recent developments, the opening up of margin finance for investors through brokers will take a bit longer than what is being professed.
The capital market regulator –– Securities Board of Nepal (Sebon) –– has already sent formal letters to brokers asking them ‘to make necessary provisions’ for margin lending and correspond to the regulator if they need any additional requirement to start its operation.
“The letter is not enough for brokers to start margin financing as Securities Act 2066 does not allow brokers to undertake any other service besides order placement,” pointed out president of Stock Brokers Association of Nepal Anjan Raj Paudyal. “We are going through the existing regulations and bylaws, and will send our suggestions to Sebon regarding necessary requirements and amendments,” he informed.
The agreement made last week by the Finance Ministry with three investor associations had decided to start margin financing through brokers’ guarantee at the earliest to enhance stock market trading. In the nine-point agreement, the possibility of getting finance through easy access to loans based on brokers’ guarantee and share purchase slips had got investors excited.
Under margin lending, brokers give partial loans to clients to cover a larger investment than one’s capital could directly cover for a fee. The regulators –– Sebon and Nepal Rastra Bank (NRB) –– have to first design guidelines or directives before giving a green signal to brokers and financial institutions to provide such loans to investors.
Sebon has thrown the ball in our court but we cannot venture into anything if regulations do not allow us, said Paudyal, adding that investors have started blaming brokers for the delay in margin lending. “We cannot start backing up investors at financial institutions without strong legal and practical provisions,” he pointed out.
Moreover, Sebon also has to direct brokers regarding margin limit and the eligibility of the brokers among others before allowing margin finance even for a short term. The central bank also has to prepare directives allowing financial institutions to lend to investors on brokers’ guarantee.
“Exercises to introduce margin lending is being done at NRB and we will prepare a circular,” said spokesperson of NRB Bhaskar Mani Gyanwali.
Existing regulations regarding loans against shares allow financial institutions to float loans against a collateral of stocks. However, investors find it ineffective.
“The existing provision of loan against shares is complicated and fails to encourage investors to buy more shares by pledging stocks owned,” explained president of General Investors’ Association Deepak Karki.
By nine months of the current fiscal year, loans against shares floated by commercial banks has plunged by 7.9 per cent. “The current structure of interest rate has made borrowing a difficult task for investors when shares have not been yielding much returns,” he pointed out, adding that investors are hopeful that margin finance can be conducted at around 12 per cent interest rate.
